Friday, July 31, 2009
Rep. Barney Frank’s “say-on-pay” bill, also known as the Investor Protection Act of 2009 (Title IX, Subtitle D of the Financial Regulatory Reform package), is making some headway. It’s expected to get a vote on the floor of the House this morning. The bill will amend Section 14 of the 34 Act. The bill requires that all members of the comp committee will be independent and strengthens compensation committee powers.
In addition, it requires a
separate, annual non-binding vote to approve the compensation of
executives. In connection with a merger or acquisition, boards
will be required to seek a separate, non-binding vote to approve
golden-parachutes or other change of control payments.
On the other hand, Prof. Charles Elson argues that shareholders should be careful what they wish for. Say on pay may not be a panacea. Evidence from the UK experience where say-on-pay has been in place since 2002 suggests that say-on-pay doesn't stop the increase in size of pay packages. They have continued to increase there in spite of say-on-pay.
In any event, one should expect NY Attorney General Andrew Cuomo's new report on executive compensation to add more fuel to the fire. The report, No Rhyme or Reason: The "Heads I Win Tails You Lose" Bank Bonus Culture, is all fire and brimstone. From the executive summary:
"When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well."
Thursday, July 30, 2009
It is days like today that have corporate directors thanking
the gods for the creation of the business judgment rule. Last year, Yahoo passed on a $48bn offer from
Microsoft. Its market cap is now
somewhere around $20bn and falling. Carol
Bratz famously said that she’d do the deal with Microsoft that Jerry Yang
passed if “boatloads
of money” were involved. Well, she
deal, sort of, but where’s the money? The Microhoo
link-up is no doubt good for Microsoft, but an extra
$275 million a year for the first 5 years for Yahoo hardly seems like “boatloads”
given what was on offer. What happens
long-term after Yahoo has handed over search and then ad revenue to Microsoft? Yahoo says that the cash has been replaced with "boatloads of value." Unfortunatelty, the source of the new value is "too hard to explain" on a conference call. Although a lawsuit for breach of fiduciary duties
would not doubt fail given the protection afforded by the business judgment
rule, I wonder when the first one will be filed.
ARIZONA STATE UNIVERSITY
Tempe, Arizona Sandra Day O'Connor College of Law
Associate and Full Faculty Positions
The Sandra Day O'Connor College of Law, under Dean Paul Schiff Berman, is poised for transformative growth in the quality and scope of its student body, its faculty, and its programs. As part of this ambitious agenda, the College of Law invites applications for associate and full faculty positions at all levels, including highly distinguished lateral and entry candidates.
We invite applications from outstanding individuals in any subject area, although there is some preference for individuals who specialize in business law (including business associations, securities, and finance), commercial law (including bankruptcy and consumer law), land-use and sustainability, law and technology, patent law, and transnational issues. Finally, individuals with established records of scholarly productivity, experience and interest in administration of centers, and a strong commitment to institutional innovation and growth are encouraged to apply.
Candidates must have a J.D. degree, or a Ph.D. degree in an area related to the law school curriculum. Candidates must also have teaching, research, and other professional experience appropriate to rank.
Applications will be reviewed beginning September 15,2009; if not filled, reviews will occur on the first of the month thereafter until search is closed. Please submit resume to:
CONTACT: Ms.Jenny Bishop Coordinator for Appointments Committee Sandra Day O'Connor College of Law Arizona State University 1100 S. McAllister Avenue Tempe, AZ 85287-7906
Additional information about the Sandra Day O'Connor College of Law and Arizona State University is available at:
ASU is an equal opportunity/affirmative action employer.Good luck!
Wednesday, July 29, 2009
Milbank, Tweed reviews the decision of the Delaware Court of Chancery in Police & Fire Ret. Sys. of the City of Detroit v. Bernal, et al. and concludes
[The Delaware Supreme Court’s recent decision in Lyondell Chemical Company v. Ryan] confirmed that directors may aggressively pursue a transaction that they determine in good faith to be beneficial to shareholders, despite the absence of an auction process, so long as their actions are reasonable and aimed at obtaining the best available price for shareholders. However, . . . the language used by the Court in Bernal certainly suggests that when a company has attracted more than one bidder, the best way for a board to satisfy its Revlon duties and maximize shareholder value is to follow a robust sale or auction process that avoids taking actions that could be perceived as favoring one bidder over another. As Court of Chancery decisions in recent years have demonstrated, when only one bidder exists, Delaware Courts are reluctant to upset the deal and risk losing an attractive opportunity for target company shareholders. In contrast, when more than one bidder is involved, Delaware Courts are more comfortable scrutinizing a deal and taking steps to permit an auction to continue.
Get the full story here.
July 29, 2009 in Asset Transactions, Deals, Going-Privates, Leveraged Buy-Outs, Management Buy-Outs, Merger Agreements, Mergers, Private Equity, Takeovers, Transactions | Permalink | Comments (2) | TrackBack (0)
Tuesday, July 28, 2009
I’ve told students in my Acquisitions Workshop repeatedly
that insider trading is no way to start a long and fruitful career. Of
course, none of them think that they’ll be so stupid as to do anything like
that. But I remind them, it doesn’t
always happen like in the movie Wall
Street. Dennis Berman’s column in
the WSJ (Insider
Affair) gives us yet another example of how easy it is to make the kind of
poor decisions that can end up in jail time.
Last May, the SEC charged James Gansman, a former partner at E&Y, and his mistress, Donna Murdoch with insider trading. Here’s the civil complaint. The DOJ also filed criminal charges in the matter. Gansman bragged to Murdoch about deals he was working on, likely to impress her and win her affections, who knows. In one case he tipped to Murdoch “news of a coming takeover to be used in one of Murdoch’s children's stock-market simulation games at school.” It appears that Gansman was rather indiscrete with information that his clients wanted treated “super strictconfidential” [sic].
Of course, Gansman never actually traded or made any money himself. He may have even believed that Murdoch was loyal to him and would keep his confidences. Unfortunately for him, that wasn’t the case. Murdoch traded on much of the information that she got from Gansman and made more than $500,000 in profits. She even shared tips with her father who also apparently traded on the information. The fact that Gansman didn’t profit financially as you’ll remember from law school is not enough to shield one from liability in tipper/tippee cases. Gansman is now going to jail, convicted on six counts of securities fraud.
Lesson for young M&A lawyers: If you’re working on a deal, don’t talk in elevators, don’t brag to friends or significant others. Oh, and even if they did pay for your legal education, your parents don’t really need to know what deal your working on.
Yesterday, Rep. Bill Pascrell (D-Springsteen) sent a letter to Assistant Attorney General Christine A. Varney urging her to investigate the pending merger between Ticketmaster Entertainment, Inc. and Live Nation, Inc. for anti-trust law violations. The letter was co-signed by 50 other members of Congress. Rep. Pascrell is also primary sponsor of the Better Oversight of Secondary Sales and Accountability in Concert Ticketing Act (BOSS ACT!!). Sen. Herb Kohl (D-WI), Chairman, Subcommittee on Antitrust, Competition Policy and Consumer Rights sent a similar letter. Sen. Kohl held hearings on this merger last February. The webcast is here. In case you haven't figured it out by now, Bruce Springsteen has been vocally opposed to this transaction from its announcement. We'll see if The Boss has any pull.
Monday, July 27, 2009
Last week Chancellor Chandler dismissed Wayne County
Employees’ Retirement System v Corti (the Activision litigation). The plaintiffs in the case made a number of
claims – you can probably guess what they were.
What caught my eye in the opinion was how the court dealt with the Revlon claims against the board. FYI: The business combination agreement in
question is here. The opinion can be found over at AmLawDaily.com along with commentary.
The court dismissed claims that the directors of Activision failed in the obligations under Revlon by not conducting an independent market check before agreeing to a sale of control. By the way, the transaction is slightly out of the ordinary in that it’s a two step deal. In the first step, Activision issued new shares to Vivendi giving them 52% control of the stock, then Vivendi engaged in a tender offer for the outstanding shares of Activision that it did not control.
In dismissing the claims against Activision’s board, the court reiterates what is by now settled Delaware law – directors are not liable for failing to carry out a perfect process during in a sale of control. There is “no blueprint” for meeting one’s duties under Revlon. Indeed, citingthe Delaware Supreme Court's decision in Lyondell v. Ryan, the court noted that “the relevant question is whether the Director Defendants ‘utterly failed to attempt to obtain the best sale price’” and not whether the process was perfect.
“Utterly failed to attempt” now that’s not an active auction or even much of a market check. In fact, that’s a pretty low bar when it comes to assessing whether directors have met their obligations under Revlon. Whatever happened to the board as auctioneer. If that’s not low enough, the court offers up Lyondell’s “knowingly and completely failed to undertake their responsibilities” language.
It’s hard to imagine what kind of inaction by directors can be the product of ‘utterly failing to attempt’ and ‘knowingly and completely failing’. I mean, it's really got to be bad. I imagine that if the facts of Revlon re-appeared in 2009 post-Lyondell that the case might even come out a different way given these standards. In Revlon, court struck down a lock-up granted to a favored bidder. That’s hardly an utter failure to attempt to obtain the best sale price.
At the Chicago meeting of the M&A Market Trends Subcommittee of the ABA Business Law Section(scheduled for 10:00 a.m. to 11:30 a.m., local time, on Saturday, August 1st):
Jennifer Muller of Houlihan Lokey will discuss deal stats for the first six months of 2009.
Wilson Chu and other members of the working group for the 2009 Private Target M&A Deal Points Study will provide a preview of selected results from that study.
Jim Griffin and other members of the working group for the 2009 Strategic Buyer/Public Target Deal Points Study will provide a preview on the public company side of things.
Saturday, July 25, 2009
The ABA's Business Law Section's subcommittee on Proxy Statements and Business Combinations will meet on Monday, August 3, at 9:30 am. Michele Anderson, Chief of M&A in the Division of Corporation Finance of the SEC is scheduled to discuss various SEC M&A regulatory issues (proposed rules, current comments, enforcement actions, etc), including
The ABA's Business Law Section's subcommittee on Proxy Statements and Business Combinations will meet on Monday, August 3, at 9:30 am. Michele Anderson, Chief of M&A in the Division of Corporation Finance of the SEC is scheduled to discuss various SEC M&A regulatory issues (proposed rules, current comments, enforcement actions, etc), includingthis just announced 13D enforcement action.
Friday, July 24, 2009
The New York Times announced in its earnings call
yesterday that it expects to sell its 18% stake in New England Sports Ventures, which among things owns the
Boston Red Sox by January 2009. I’m starting
Over at post-bankruptcy GM and Chrysler decisions are now
being weighed studiously on whether or not shedding this division or that brand
contributes to the bottom line and increased efficiency. It’s all so heartening for those who look at
the world for an economic bent. The
pending merger between VW and
Porsche? Uhh, not so much. This transaction in the making has been a soap
opera for quite some time now. Granted
there was that little bit of excitement last fall when we got to watch close up
the financial world’s equivalent of the dodo bird – the stock
corner. Although fun and exciting
(if you’re not on the wrong end), it’s also now illegal in the US, so don’t
expect to see another one soon.
Although Porsche reported large profits on the VW corner last fall the transactions involved left Porsche saddled with debt and vulnerable. VW, led by Ferdinand Piech, have spent the last year hunting down Porsche, in part I suspect to exact revenge. Bad blood between Piech and now former Porsche CEO is no secret apparently. Had Wiedeking at Porsche succeeded in acquiring VW, Piech no doubt would have been out. But it’s also more complicated. Ferdinand Piech is grandson of Ferdinand Porsche (founder) and part of the Porsche family group that controls Porsche. One wonders whether there are fiduciary concerns here given the role of the Porsche family and Piech, sure, but if the Germans had Thanksgiving, I wonder what the dinner conversation must have been like!
In the end, family controlled Porsche board had two options on the table: First, accept an infusion of capital from Qatar and leave Porsche CEO Wiedeking in place and maintain the company’s independence or; second, agree to be acquired by VW and permit the Porsche family through Piech and his group to control both VW and Porsche. It looks like they’ve finally opted for the latter.
A sidenote – after the Porsche board met and decided to go with VW yesterday, CEO Wiedeking was promptly sent packing with a $71 million golden handshake. The payout is raising hackles in Europe. To his credit though, Wiedeking has pledged to give half of this amount away to charity.
Thursday, July 23, 2009
Surprise! As information asymmetries with respect to valuation of a target increase, parties are more apt to rely on earnouts to bridge the valuation gap. Contingent Earnouts in Acquisitions of Privately Held Targets by Ragozzino and Reuer is appearing in the most recent Journal of Management. Here's the abstract.
Abstract: Prior research has devoted significant attention to ownership choices when firms make market entry decisions (e.g., equity alliance versus acquisition). This article emphasizes the importance of studying firms’ contractual choices as well as the potential relationships between their contractual and ownership choices. This study of acquisitions examines the incidence and determinants of contingent earnouts, which are contracts that specify deferred variable payments to the target. The evidence indicates that the usage of such contracts increases with information asymmetries surrounding mergers and acquisitions, in particular when privately held targets are young or possess knowledge bases that are dissimilar from those of the acquirers. The article also presents evidence that firms’ contractual choices (i.e., earnouts) and ownership choices (i.e., equity alliances) can substitute for one another.
Wednesday, July 22, 2009
Been off doing summer-like things for the last few days. Hey, it’s summer! The WSJ reports today that SEC has fined Perry Corp $150,000 in connection with its failure to file a timely 13D following its acquisition of nearly a 10% position in Mylan stock in 2004. At the time time, Mylan was in the process of acquiring King Pharmaceuticals. Carl Icahn acquired a significant stake in Mylan and disclosed his opposition to the transaction. Perry Corp (an arb) quietly accumulated a block of shares of Mylan similar in size to that of Icahn in order to vote for the transaction and increase the likelihood of its approval. Perry was able to hedge its position through a series of swaps. Ultimately, Perry held nearly 10% of Mylan’s voting shares but had successfully left behind any economic exposure. In effect, Perry was through these transactions to buy votes without the accompanying economic exposure.
Academics jumped on this transaction as an example of “empty voting” – see papers from Black & Hu and Kahan & Rock. Delaware responded by making amendments to its corporate law (new Sec. 213) that will make it harder (though not impossible) to accomplish the same series of transaction. The new Sec 213(a) permits boards to fix two separate record dates – one date for determining those stockholders entitled to notice of a meeting and a second date (closer to the meeting date) for determination of stockholders entitled to vote at the meeting. The date for determining who may actually vote may be any date, including the date of the meeting.
Now the SEC has weighed in (Administrative Order In the Matter of Perry Corp). When Perry undertook its hedges in connection with the Mylan-King transaction it did not file a timely Schedule 13D which would have required it to disclose its position and its intentions. Perry sought out legal advice of its regular outside counsel. Apparently Perry’s outside counsel advised Perry that it had to file a 13D because the block was accumulated in “a merger situation.” Engaging in a bit of legal arbitrage, Perry consulted another lawyer (“Lawyer B”) who provided a different answer – “assuming the purchase of Mylan shares is ordinary course for Perry …, I think you can file a 13G if a filing is necessary.” Filing a 13G and not a 13D would permit Perry Corp to delay filing so that it would not have to disclose its position to the market during the period before the stockholder vote.
The SEC has a different opinion.
When institutional investors acquire, directly or indirectly, the beneficial ownership of securities with the purpose of influencing the management or direction of the issuer or affecting or influencing the outcome of a transaction – such as acquiring securities, or an interest in securities, for the purpose of voting those securities in favor of a merger – the acquisition of those securities cannot be said to be in the “ordinary course of [the institutional investor’s] business” for purposes of relying on Rule 13d-1(b) or making the certification under Item 10 of Schedule 13G.
The lesson here is that empty voting bothers a lot of people, particularly regulators the wrong way. Delaware is trying to provide boards the tools through the setting of record dates to fight it. And the SEC will use its disclosure rules to ensure that even if parties are able to structure such transactions that they are required to make timely disclosure to the market.
Tuesday, July 14, 2009
Wondering what to read during your next weekend at the beach? The latest Nora Roberts or Catherine Colter novels not attracting your attention? Or maybe like me, your local bookstore for some reason doesn't carry the latest Glenn Beck tome? OK, that's probably a sign that your weekend might be better spent catching up on recent developments in the Delaware corporate law. So how about the 2009 Developments in Delaware Corporation Law (James Holzman at Prickett, Jones, & Elliott)? It's a nice 60 page overview of everything you missed over the past year while you were struggling just to keep up with the day's headlines. Print it out and bring it to the beach.
Monday, July 13, 2009
Prof. Donald Clarke over at the China Law Prof Blog has some thoughts on the Chinese arrests of four Rio Tinto employees for "espionage" following the collapse of the Chinalco/Rio Tinto transction last month. He thinks its a serious and unusual situation. I agree, but it also points to an obvious danger. The espionage/state secrets statutes in China are vague and over-broad, meaning that the kind of information that was easily shared with Rio Tinto when everyone thought its deal with Chinalco was still on suddenly became a "state secret" when Rio Tinto walked away from the transaction. It's hard to know what exactly is happening as there is not a lot of information. Who knows, maybe this is just about bribery. One thing for sure, it's better to tread lightly.
The WSJ has the Reuters video here:
Friday, July 10, 2009